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What is a Guarantor Loan?

A guarantor loan is money lent to you on the understanding that if you do not pay someone else (the Guarantor) will have to do so on your behalf. They become responsible for maintaining the ongoing payments or paying the balance in full.

You can ask anyone to act as your guarantor. Commonly it would be a family member or close friend. Before you get the loan they will have to sign an agreement to confirm they understand they could become liable for the outstanding amount.

If you do not pay your loan for any reason the finance company will contact your guarantor and inform they that they must start paying on your behalf.

If a Guarantor cannot or will not pay a debt they have guaranteed the loan company can take legal action against them to enforce its repayment.

Can a Guarantor Loan be included in an IVA?

However the person who has guaranteed the loan is not protected. They then become responsible for making the payments instead of you.

If they can afford to do this it may not be a major issue. There is nothing to stop you agreeing to pay them back after your Arrangement has finished if you wish.

If you start an IVA and your Guarantor cannot afford to pay the loan they may be forced to start their own debt management solution.

Can you leave a Guarantor Loan out of your IVA?

You might consider leaving your guarantor loan out of your IVA. This way you could avoid the guarantor having to pay it or even learning about your debt problem. However it is unlikely you will be able to do this.

You will not be allowed to include a specific amount in your living expenses budget to maintain the loan payments. If you try your other creditors are likely to reject your application on the basis that they are being treated unfairly.

As such the only option would be to try and keep paying the loan from your agreed expenses allowances. However this will put you under considerable financial pressure and may result in you not being able to maintain your IVA payments.

If possible it is best to pay off a Guarantor Loan before starting your IVA. Your guarantor is then released from their responsibility. They will not be liable if you start the Arrangement with your remaining creditors.

Can you start an IVA if you are a Guarantor for someone elses Debt?

There is nothing to stop you applying for an IVA if you have agreed to act as a guarantor for someone else. However you must declare the loan you guaranteed in the list of your debts.

Once the Arrangement is in place if the person responsible for the loan stops paying you will be protected. The loan company cannot chase you for the money.

Having said that the Arrangement only protects you. Legal action to recover the debt can still be taken against the person who took the loan in the first place.

If you are a Guarantor and start an IVA is should not affect the person who borrowed the money. As long as they continue to make the agreed repayments there should be no problem.

8 thoughts on “Guarantor Loan and IVA”

The first thing to say is that you should really think twice before borrowing more during an IVA. If you do you are likely to struggle to maintain the payments on the new debt. As a result you could put your whole IVA at risk.

If you need extra money because you are facing a financial emergency (such as a home appliance or car repair) then it is best to speak to your IVA company about a payment break. This could help you by allowing you to suspend your IVA payments. You could then use the money saved to pay for the emergency.

If you are struggling more generally with your ongoing IVA payments then you should speak you your IVA company about the possibility of lowering them to make things easier. If this is your problem then simply taking a payment break (or borrowing more) will not fix anything.

In terms of your specific question if you are already in an IVA your credit rating will be poor. This will mean that it will be difficult for you to borrow more during the arrangement. That said you might find that you can still borrow from a guarantor loan or payday loan company as their lending criteria are different. However as I mentioned above I would strongly advise against it.

Unfortunately it is not possible to include an amount in your IVA living expenses budget to continue paying a guarantor loan. As discussed in section 3 of the above article your other creditors would not accept this because they would rightly see it as a preferential payment. They would not agree to your IVA proposal.

The only way around this would be to try and continue paying the loan by making savings from your other agreed living expenses. However if the payment is relatively large this will not be possible as it would be impossible for you to maintain both this and your IVA payment. As such unless the loan payments are very small I would say an IVA is not suitable for you.

Given this your best option would be to reduce the payments on your other debts using a debt management plan. You could leave the guarantor loan out of the plan and continue to pay it. Once the loan is paid you can then consider a different solution such as an IVA to resolve the remaining debts if necessary.

I guaranteed a loan but the person who got the loan has now started an IVA. The collectors are now coming to me. If I start paying this wouldn’t it mean we are both paying it eventually? Also I am a home owner what are my options if I’m struggling to pay?

If the person who took the loan now starts an IVA the loan company will automatically come to you for payment. This is the standard procedure. You are correct in thinking that you will both then be paying towards the debt. However you will not pay twice. Whatever amount the creditor receives through the IVA will be deducted from the balance that you have to pay.

The issue for you however is the money creditors get back through the IVA is likely to be very small. As such you will still have to repay most of the outstanding debt.

If you are unable to afford the required monthly payments then your options will really depend on your wider circumstances and whether you have other debts you are liable to pay. If not then the best solution might be a Debt Management Plan. However if you have more debts of your own starting an IVA yourself could be a sensible option.

Bankruptcy is unlikly to be suitable unless your property is in negative equity or the amount of equity is very small.

If you have a guarantor loan which you do not pay because you have started an IVA the guarantor (in this case your wife) is liable to pay the debt instead of you. However as highlighted in the article above if they are unable to pay they can certainly start their own debt management solution.

If your wife starts an IVA her liability for this loan will be included in her Arrangement. As such you will both be protected. This outstanding debt will effectively be written off after your IVAs have been completed.